Post-Merger Spansion 'Integrates' With Big Move Into Auto

MADISON, Wis. — Spansion Inc., armed with a combination of flash, microcontroller, and power management in its portfolio, is moving aggressively into the automotive sector.

Synergy, or integration, is no longer the stated goal behind Spansion's acquisition last summer of Fujitsu Semiconductor's MCU and analog businesses. As demonstrated in its first-quarter results, Spansion is now scoring design wins globally, especially in the automotive and industrial sectors. “We are making significant progress with our acquired product lines,” said John Kispert, CEO of Spansion, during the financial call Tuesday, May 6.

Spansion, for the first quarter ended March 2014, reported net sales of $311.8 million, a 64 percent increase compared to the same quarter a year ago.

Record design wins
Kispert told EE Times that his company achieved “record design wins” in the March quarter. Without naming names, he talked about “a number of major design wins with Tier 1 customers” outside of Japan. The company gained new customers and design wins in the US automotive market where Spansion historically has had little exposure. Spansion performed similarly in Korea and Europe.

The company is increasing software and IP content in its chips in a drive to offer more differentiated solutions.

Spansion is expanding its microcontroller business worldwide, which includes 8-bit, 16 bit, and 32-bit proprietary and 32-bit ARM-based microcontrollers. The company is also pushing integrated solutions that combine embedded flash technology, software, middleware, security, and human/machine interface capabilities. “Our customers are accepting the new direction and are excited about our roadmap,” said Kispert.

In the second quarter (ending June this year), Spansion plans to roll out “close to 20 new products” -- including MCU, analog, and flash, said Kispert.

In addition to new products from each of the flash, MCU, and analog product lines, Spansion expects to launch SoCs integrating low-power and no-wire solutions for automotive and industrial applications. While refraining from pre-announcing any specific products, Kispert reiterated that the company’s focus is in driving top-line growth and accelerating introduction of new products.

Asked about the company’s strategy for the second quarter, Kispert laid out plans for further investment in the company’s software organization, and focus on “overall solution enablement.” Through the Fujitsu acquisition, Kispert said, Spansion added 250 software engineers. “It is a nice software organization, and we plan to invest more there,” with a plan for the group’s expansion worldwide.

Asked about what he means by “overall solution enablement,” the CEO explained that the company is offering “boards, functions, and starter kits for each application.”

Take an example of customers in the automotive sector, said Kispert. They are under tremendous time-to-market pressure, while they search for technology answers that are getting increasingly complex. “Our job is to offer well-integrated solutions” the customers can use right away. Spansion is offering chip solutions containing much more software, analog, and IP.

Spansion's revenue by end market (Source: Spansion)

Financial outlook
As for first-quarter results, Spansion reported a non-GAAP basis gross margin at 33 percent, with $19.0 million in operating income and $11.6 million of net income.

For the second quarter of 2014, Spansion projects net sales in the range of $315 million to $340 million. Non-GAAP gross margin is expected to be in the range of 32% to 35%, the company said.

As for the company’s continuing IP protection battle against Taiwan’s Macronix, Spansion paid out $1 million to $2 million for defensive litigation. The company also saw one-time items related to the recently acquired Fujitsu Microcontroller and Analog business, including $2 million to $3 million in inventory markup related to fair value accounting, and $2 million to $3 million in integration-related costs.

Asked what, if anything, the CEO is concerned about in the coming months, Kispert said, “Well, the integration [of the two companies] is a job never done. Cultural and business differences between the two companies are big big challenges.” However, he quickly added, “We have set a high bar for creating synergy while not losing any energy in developing products.”

Kispert noted that “it is not unusual for companies to experience the loss of revenue six or nine months after acquisitions.” He said there are always big differences in processes and IT infrastructure between two merged companies that can distract or bog down the company's efforts for product definition and integration of sales/distribution organizations.

"First, you have to embrace the differences. You need to accept them," said Kispert. More important, management needs to sit the two teams down and ask them to “figure out, quickly, the best way to do things together,” whether it’s a matter of product definitions or different iterations of IC development.

If Spansion is to measure the success of the merger, the proof lies in the number of new products the company is rolling out in the coming quarters, said Kispert. "Both teams have done a lot of hard stuff. They've done a terrific job in integration so far."

"First, you have to embrace the differences. You need to accept them, figure out, quickly, the best way to do things together."

This is so true. As the communication improves, the cross culture communication is going to be part of our lives. Today leaders will inevitable deal with conflict between people from different cultures. How to become the best next generation leaders will be determined how much they can bridge the communication gap.

Very true, Junko. Keep flogging that horse. I have seen acquisitions that went very well and the new company prospered and others that were a big waste of money. It is difficult to combine companies because so many functions have duplication. In the end, the success of the new company depends on hard decisions made during the first few months.